The President of the European Central Bank (ECB) Mario Draghi attends a press conference after the Governing Council meeting in Tallinn, on June 8, 2017. The European Central Bank signalled greater confidence in the eurozone economy, as it took what analysts describe as a tentative step towards an exit from its easy-money policy. / AFP PHOTO / RAIGO PAJULA (Photo credit should read RAIGO PAJULA/AFP/Getty Images)

Mario Draghi, the head of the European Central Bank, has hinted in a speech that the ECB might slow down, stop or even reverse elements of the quantitative easing process. The insight being that as inflation picks up--a major goal of the process itself--then the policy stance if flat becomes more accommodative. Thus it is possible to tighten policy as the inflation does pick up but still maintain a stable stance in terms of the influence of monetary policy upon the economy. The reason the euro bounced as a result is that the most notable effect of QE so far hasn't been upon inflation at all but in lowering the value of the euro. So, stop doing so much QE and the euro rises, seems fairly reasonable if we're honest about it.

The euro surged almost 1 percent against the dollar on Tuesday after European Central Bank President Mario Draghi opened the door to tweaks that might begin to reduce the Bank's emergency stimulus to the economy shortly.

Speaking to a conference in Portugal, Draghi said the central bank could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic prospects improve in Europe.

That does make sense, after an emergency policy has done its work presumably we no longer need the emergency policy as we've not got the emergency.

The main news moving markets this morning was an upbeat speech by Mario Draghi at the ECB Forum in Sintra. Some have described Mr Draghi's speech as a little hawkish with the ECB president saying that only temporary factors were holding back inflation. However, he maintained that monetary policy will "need to be persistent" as inflation is still not "self-sustaining".

There's a not so subtle difference between being persistent and carrying on as is. For at the moment the ECB is still buying more bonds each month under the QE program. As opposed to the Federal Reserve, which stopped years ago and only replaces bonds as they mature. So, carrying on as is means increasing QE by buying more. Being persistent means maintaining the stock but not adding to it, as with the Fed.

Yet, the bank's tiptoe approach towards withdrawing ongoing stimulus in the form of asset purchases and towards moving interest rates back into positive territory is increasingly rankling among economists and policymakers within the broader region.

As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments -- not in order to tighten the policy stance, but to keep it broadly unchanged.

Another way of putting this is that increasing inflation in itself lowers the real interest rate even as the nominal one stays static (and in terms of the ECB's one, negative). Thus as the inflation returns then monetary policy becomes ever looser if interest rates are kept where they are. A tightening therefore, a slight one to be sure, can be seen as keeping policy neutral rather than tightening it in real terms.

What Draghi is really saying is that as the policy begins to work in generating inflation they can tighten again while still creating the same amount of inflation.